Do you like what you just read?

Iran is bunkering its oil on ships at sea

The Islamic Republic of Iran has been playing coy with the world’s oil markets, having been routinely switching off satellite tracking systems on oil tankers for more than a month. Iran began using the tactic in April 2012, which affects about one quarter of its fleet, according to the International Energy Agency. Currently, only 1 tanker out of 38 is now complying with satellite tracking. While it violates international maritime law, the practice serves to cloak the positions of the huge ships as they seek ports and buyers willing to violate sanctions on Iran. Without the tracking, the efficacy of oil sanctions on Iran is difficult to determine. Currently, Iran is also hobbled by sanctions on its bank transactions.

Dependent on petroleum for the bulk of its export income and government spending, Iran is in an increasingly perilous situation as it faces tightening restrictions imposed by the West. With its revenues sagging, Iran now faces a glut of oil that is being stored in land-based depots, and on its vessels at sea.

Sanctions have cut off Iranian shippers’ access to maritime insurance, mostly underwritten in Europe, and making Iran ever more dependent on its own fleet of 39 tankers, including 25 super-tankers, according to the IEA. After being pressured by the United States, Lloyd’s Register said last month that it is closing its office in Iran and stop certifying the safety of Iranian ships. Their certification is needed by ships seeking entry at most of the world’s ports. This steps up the pressure on Iran, which was already facing the end of its relationship with Norway’s DetNorskeVeritas, another ship classification organization.

A May 11 IEA report declared that Iran’s output of crude oil was still relatively high but down from 2011, at 3.3 million barrels a day in April. The IEA averred that Iran’s unsold production is ending up in onshore and floating storage. Estimates of Iranian crude added to floating storage in March and April of this year have ranged from 450,000 to 800,000 barrels a day, the IEA said. An additional 20 million to 25 million barrels have been added to onshore storage facilities in recent months, according to the agency. Iran has rejected the International Energy Agency's report, which says that the country has stored up to 30 million barrels of unsold crude oil in oil tankers in the Persian Gulf.

This week, National Iranian Oil Company's director for International Affairs MohsenQamsari told Mehr News Agency that there is no stored oil without customers now held on Iranian tankers. Oil Minister RostamQasemi has also denounced the IEA report. Qamsari said that 12 new tankers, recently purchased by Iran, will not be used to store crude oil. According to the Iranian news agency, Iran's oil production remained steady at 3.3 million barrels a day in April, but 15%- 25% of that oil went unsold and had to be pumped into floating tanker storage, the IEA said. The agency quoted Olivier Jakob, the managing director of the Petromatrix consultancy, who said "There is enough room between the level of OPEC production and the level of the call on OPEC [oil] to allow for a greater disruption to Iranian supplies," Olivier Jakob, Managing Director of consultancy Petromatrix, reportedly said.

Iranian authorities claim to have actually increased oil production by 38,000 barrels a day from 3.8 million barrels a day in April. The new sanctions on Iran were imposed in January of this year. OPEC's own analysts, using secondary data sources, estimate that Iran's oil production has fallen by 152,000 barrels a day since January to 3.2 million barrels a day in April.

U.S. officials dismissed the Iran’s tactic of shutting off satellite tracking as ineffective, noting that spy satellites and other surveillance systems are easily able to track the 1,000-foot long ships on the open seas, even with the GPS turned off. It is possible that all of Iran’s marooned oil will be eventually sold, according to U.S. officials, since traders will seek to make a profit from sharply discounted Iranian crude. With global prices for petroleum inching down over the last month, Iran may be compelled to accept far less cash for its fungible fossil fuel.

In related shenanigans, an oil tanker belonging to Iran has been switching flags and using multiple companies to transport crude oil from Syria to Iran, which may mean that Iran is aiding President Bashar al Assad’s regime in Syria. According to the Financial Times, a ship operated by Islamic Republic International Shipping Lines recently sailed from Syria to the Gulf of Oman and then Iran while using different flags and changing owners.

The stakes for Iran are increasingly high as it prepares for talks on its nuclear facilities and weaponization that will begin on May 23. Western countries are hoping that pressurizing Iran will bring about a change of heart in Iran, and thus an end to its possible nuclear weaponization program.

“They are increasingly isolated — diplomatically, financially and economically,” David Cohen, the Treasury Department’s undersecretary for terrorism and financial intelligence, said last week. “I don’t think there is any question that the impact of this pressure played a role in Iran’s decision to come to the table.” “The value of their currency, the rial, has dropped like a rock,” Cohen told listeners at the Center for Strategic and International Studies in Washington DC. “That has had a significant impact on Iran’s ability to pay for materials for the nuclear program, and, more broadly, it puts pressure on the leadership.”